Prepare ahead for long-term care costs

November is Long-Term Care Awareness Month — a month dedicated to educating the public about the need to prepare for the potentially devastating costs of long-term care. And the more you know about these expenses, the better prepared you will be to deal with them.

To begin with, just how expensive is long-term care? Consider this: The average cost for a private room in a nursing home is more than $87,000 per year, according to the 2014 Cost of Care Survey produced by Genworth, a financial-services company.

And the average cost of an assisted living facility, which provides a level of care that is not as extensive as that offered by a nursing home, is $42,000 per year, according to the same Genworth study. All long-term care costs have risen steadily over the past several years, with no indication that they will level off.

Many people, when they think about long-term care at all, believe that Medicare will pay these costs — but that's just not the case. Typically, Medicare only covers a small percentage of long-term care expenses, which means you will have to take responsibility. Of course, if you are fortunate, you may go through life without ever needing to enter a nursing home or an assisted living facility, or even needing help from a home health-care aide. But given the costs involved, can you afford to jeopardize your financial independence — or, even worse, impose a potential burden on your grown children?

To prevent these events, you will need to create a strategy to pay for long-term care expenses — even if you never incur them. Basically, you have two options: You could self-insure or you could "transfer the risk" to an insurer.

If you were going to self-insure, you would need to set aside a considerable sum of money, as indicated by the costs mentioned above. And you would likely need to invest a reasonably high percentage of this money in growth-oriented investments. If you chose this self-insurance route, but you never really needed a significant amount of long-term care, you could simply use the bulk of the money for your normal living expenses during retirement and earmark the remainder for your estate. However, if you did need many years of nursing home care, you could end up going through all your money.

As an alternative, you could transfer the risk of paying for long-term care to an insurance company. Many plans are available these days, so, to find the choice that is appropriate for your needs, you will want to consult with a professional financial advisor. Here's a word of caution, though: The premiums for this type of protection rise pretty rapidly as you get older, so, if you are considering adding this coverage, you may be better off by acting sooner, rather than later.

None of us can know with certainty what the future holds for us. Ideally, you will always remain in good shape, both mentally and physically, with the ability to take care of yourself. But, as you've heard, it's best to "hope for the best, but plan for the worst." So, take the lessons of Long-Term Care Awareness Month to heart and start preparing yourself for every scenario.

Wil Adams, AAMS, is a financial advisor with Edward Jones. He can be reached at 549-9155.